Higher Car Prices and Poor Buying Options: Declining Auto Leases Impact the Overall Market
The past couple of years has been a volatile time for the auto market. Higher than average new and used car prices, fewer options to choose from, and kinks in the supply chain have shaken up the industry in ways not seen for decades.
One seemingly unexpected outcome has been the decline in auto leases. While it might not seem like an impactful outcome, declining lease agreements are beginning to impact drivers looking to get into a new vehicle in more ways than one. If you’re getting ready to dip into the auto market, here’s what you need to know.
Why Aren’t Drivers Leasing Vehicles?
The price of getting into a vehicle has increased no matter whether you’re shopping new, used, or leasing. This increase in price has forced consumers to take a closer look at how they budget for their vehicles. According to the latest report from Cox Auto, the average monthly payment hit $661 in December, a staggering 33% higher than in March 2020. For many, this monthly lease payment might be better suited towards an auto payment for a new or used vehicle that they can keep at the end of the loan.
Inflationary prices across all industries have also forced consumers to pay closer attention to what they’re spending their money on as well. For many drivers, especially those who have shifted to remote work, owning a vehicle, or the type of vehicle they own may have caused them to change their buying habits.
Finally, for those who aren’t selling their vehicle, they may be part of a growing number of Americans who are deciding to hold on to their vehicle for longer. According to data compiled by S&P Global Mobility, the average driver holds on to their vehicle for roughly 12.2 years. This desire of drivers to stay in the vehicle they originally purchased has impacted the overall leasing model of the automotive market.
What Does This Mean for Used Vehicle Inventory?
As rates of lease agreements decline across the nation, the ripple effects are being felt in the used car inventory. Leased vehicles are an important pipeline to the certified pre-owned inventory that many used car dealers carry. Leased vehicles are newer, are still under warranty in most cases, and are still in great condition for a higher resale value. With fewer drivers leasing vehicles, there isn’t a dedicated pool of vehicles to tap into for car dealers that need to replenish their certified pre-owned car lots.
How Will Used Car Prices Be Impact By Declining Lease Agreements?
With fewer used vehicles to choose from in the certified pre-owned inventory, drivers are looking at fierce competition against other drivers who are looking to shop used. The natural outcome? The price of used vehicles has soared over the past couple of years. While largely fueled by the pandemic, interruptions in the supply chain, and other economic factors, fewer lease agreements played a role in driving up the price of used cars.
Luckily, as the automotive industry begins to stabilize, many drivers are starting to see the price of used vehicles tick downward. While prices are nowhere near pre-pandemic lows it begs the question of whether drivers are ready to get back into leased vehicles or whether the trend is set to continue into 2023.
This post may contain affiliate links. Meaning a commission is given should you decide to make a purchase through these links, at no cost to you. All products shown are researched and tested to give an accurate review for you.
